Revenue Procedure 2010-20 provides a safe harbor under section 118(a) of the Internal Revenue Code for the treatment of a Smart Grid Investment Grant under 42 U.S.C. 17386 made by the United States Department of Energy to a corporation for qualifying investments under the Smart Grid Investment Matching Grant Program as authorized by section 1306 of the Energy Independence and Security Act of 2007 (Pub. L. 110-140), as amended by section 405, Division A of the American Recovery and Reinvestment Act of 2009 (Pub. L. 111-5). Also attached is the related news release from the Department of the Treasury.
 
Revenue Procedure 2010-20 will be published in Internal Revenue Bulletin 2010-14 on April 5, 2010.

 

Posted by Joshua Hock, Associate Editor, Wealth Strategies Journal

Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. Money paid for medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than your standard deduction, you can usually benefit by itemizing.

The standard deduction amounts are based on your filing status and are subject to inflation adjustments each year. For 2009, they are:

• $5,700 for Single
• $11,400 for Married Filing Jointly
• $8,350 for Head of Household
• $5,700 for Married Filing Separately
• $11,400 for Qualifying Widow(er)

Some taxpayers have different standard deductions

The standard deduction amount depends on your filing status, whether you are 65 or older or blind and whether an exemption can be claimed for you by another taxpayer. If any of these apply, you must use the Standard Deduction Worksheet on the back of Form 1040EZ, or in the 1040A or 1040 instructions. The standard deduction amount also depends on whether you plan to claim the additional standard deduction for state and local real estate taxes or state or local excise tax on a new vehicle, and whether you have a net disaster loss from a federally declared disaster. You must file Schedule L, Standard Deduction for Certain Filers to claim these additional amounts.

Limited itemized deductions

Your itemized deductions may be limited if your adjusted gross income is more than $166,800 or $83,400 if you are married filing separately. This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses of personal use and income producing property, gambling losses and investment interest expenses.

Married Filing Separately

When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and should itemize their deductions.
Some taxpayers are not eligible for the standard deduction They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months due to a change in accounting periods.

Forms to use

The standard deduction can be taken on Forms 1040, 1040A or 1040EZ.  If you qualify for the higher standard deduction for real estate taxes, new motor vehicle taxes, or a net disaster loss, you must attach Schedule L. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.

For more information, consult Publication 17, Your Federal Income Tax. Forms, publications, and instructions may be downloaded from the IRS.gov Web site or ordered by calling 800-TAX-FORM (800-829-3676).

Posted by Joshua Hock, Associate Editor, Wealth Strategies Journal  

Tax Tip 2010-47 lists six points about the higher standard deduction for real estate taxes:

1. The additional deduction amount is equal to the amount of real estate taxes paid, or $500 for single filers or $1,000 for joint filers, whichever is less.

2. The taxes must be imposed on you.

3. You must have paid the taxes during your tax year.

4. The taxes must be levied for general public welfare on the assessed value of the real property and charged uniformly on all property under the jurisdiction of the taxing authority. Many states and counties also impose local benefit taxes for improvements to property, such as assessments for streets, sidewalks and sewer lines. These taxes usually cannot be deducted.

5. Real estate taxes paid on foreign or business property do not qualify for the increased standard deduction.

6. You must file a Form 1040 or 1040A and attach Schedule L, Standard Deduction for Certain Filers, to claim the increased deduction. When claiming the higher standard deduction for real estate taxes, be sure to check the box on line 40b of Form 1040 or line 24b of Form 1040A.

For more information, see Form 1040 instructions or 1040A Instructions and Schedule L instructions. The forms and instructions can be downloaded at IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676).

Posted by Joshua Hock, Associate Editor, Wealth Strategies Journal

Taxpayer choice pervades the federal income tax system. This choice can be made either implicitly, whereby the taxpayer arranges his economic and/or legal affairs so as to qualify for his desired tax treatment, or explicitly, whereby the taxpayer merely tells the Internal Revenue Service how he wishes to be treated for tax purposes, without having to take any specific non-tax actions or structure his financial or legal dealings in any particular way. Scholars often focus on implicit taxpayer choice and seek to hinder that type of tax planning. However, explicit taxpayer choice garners little scholarly attention. This hole in the literature is surprising given that explicit taxpayer choices, in the form of tax elections, generally reflect pure tax-planning opportunities that are affirmatively granted to taxpayers by Congress and the Treasury Department and given that tax elections continue to be added to the Internal Revenue Code.

To help fill this gap, this Article provides a framework for understanding how explicit tax elections are and should be used in the federal income tax system. Specifically, by drawing on a wide variety of tax elections, this Article discusses problems that may be caused by the use of explicit tax elections, identifies and assesses four major functions served by explicit tax elections, and derives a few generally applicable recommendations about how to design explicit tax elections so as to maximize their efficacy and minimize criticisms of their use. Despite the many compelling criticisms of the availability of explicitly provided taxpayer choices, this Article argues that carefully conceived explicit elections can be valuable tools in the design and administration of the tax system. Moreover, by isolating and analyzing situations where Congress and the Treasury affirmatively turn over to the taxpayers the right to determine their own tax consequences, this study of explicit elections can provide insight into the broader balance of power between taxpayers and the government. And, at the very least, this Article brings scholarly attention to the under-studied role of explicit elections in the tax system.

Posted by Patrick Siegfried, Associate Editor, Wealth Strategies Journal.

This paper proposes that policymakers encourage "automatic annuitization" so that it becomes an integral part of defined contribution retirement plan design in the U.S. A large body of research in economics indicates that life annuities are the most cost-effective way to provide guaranteed income that will last for as long as an individual lives and that, as a result, annuities ought to play a central role in the portfolio of most retirees. Unfortunately, for a variety of historical, regulatory and behavioral reasons, most participants in defined contribution plans (such as 401(k) and 403(b) plans) do not currently have access to guaranteed income options through their employer's plan. An emerging body of evidence suggests that making life annuities the "default" payout option from defined contribution retirement plans may be an effective way to increase annuitization rates and therefore an effective way to boost retirement income security of future retirees. The paper discusses a general outline for how such an automatic annuitization program could be implemented so as to increase participant choice, encourage annuitization for the majority of households for whom annuities would enhance retirement security, and limit the administrative burden on plan sponsors.

Posted by Patrick Siegfried, Associate Editor, Wealth Strategies Journal.